Estimating the heterogeneous and dynamic economic impacts of China's energy consumption control policy

In the late stages of its industrialization, China's economy still largely relies on energy. With increasing pressures to protect the environment and reduce carbon emissions, in 2013, the Chinese government officially issued four policies in succession to control total energy consumption. In this paper, we use the single difference model to estimate the average and dynamic economic impacts of such policies. We also introduce the energy dependence degree and divide all industrial sectors into two categories to estimate heterogeneous and dynamic policy effects based on the difference-in-differences (DID) model. Our empirical study shows that the implementation of energy consumption control policies results in a decrease in economic growth rates. Meanwhile, the negative dynamic economic effects of such policies decrease levels of volatility. Furthermore, such policies have heterogeneous economic effects on levels of energy dependence across sectors and have more significantly negative economic impacts on heavily energy-dependent industries but with hysteresis. Heterogeneous and dynamic economic effects on heavily energy-dependent industries are decreasing. We conclude with recommendations on ways to mitigate the negative effects observed.